One of the principal difficulties in operating any business is maintaining a consistent and adequate cash flow. This is a problem separate and apart from overall profitability and is a consequence of unpredictable delays by customers in paying outstanding invoices. Thus, for example, a business that is, in fact, profitable may nonetheless be forced into financial hardships, such as bankruptcy, by unanticipated delays in collection of receivables. This risk is particularly acute in, for example, the healthcare industry where large institutional and governmental payers are likely to pay outstanding invoices eventually but are frequently dilatory in making such payments.
Typically, many businesses attempt to compensate for this type of risk by opening lines of credit or otherwise borrowing money from lending institutions. However, the cost of a line of credit is usually variable and, therefore, unpredictable. Also, lending institutions are typically free to terminate lines of credit with relatively few limitations and relatively little notice.
Accordingly, there is a need for a reliable cost effective and stable mechanism to enable a business to insure a minimum cash flow.